Nudging through Mandating Disclosure

Abstract

This paper evaluates the welfare implications of mandatory disclosure as a means for the government to nudge businesses toward politically desired behaviors without coercion. We explore a unique setting in China, where firms face varying exposure to a political campaign targeting poverty alleviation (TPA), due to differential reporting requirements. We find that firms required to prominently disclose their TPA significantly increase donations but also more than double their pollution levels. These environmental externalities arise from the increased political salience of TPA, which incentivizes firms to deprioritize environmental protection efforts. This tradeoff aligns with politicians’ agendas, helping firms secure more government subsidies and preferential loans, thus improving their performance at the cost of society at large.

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